Despite Q1 Slowdown, Office Market Still on Pace for Strong 2015

The 2015 Q1 North American Research & Forecast Office Report presents a comprehensive overview of the office segment of commercial real estate. Produced by the Colliers National Office Services group, the report assesses 92 markets in the U.S. and Canada, with a combined total of more than 6.5 billion square feet, and analyzes how factors and trends -- such as changes in employment, vacancy, absorption, tenant demand and construction activity -- impact office market health. This report forecasts that the office market in the United States and Canada will experience growth in 2015 in spite of a slow first quarter.

Key findings in the report include:

Steady vacancy rates. The North American vacancy rate was essentially flat, at 12.9 percent in Q1 2015, as the Canadian vacancy rate was up by a modest 19 basis points (bps) to 8.5 percent, while the vacancy rate in the much larger U.S. market was unchanged at 13.2 percent.

Suburban market outperforms Central Business Districts (CBDs). North American office absorption slowed to 10.2 million square feet (MSF) in Q1 2015, with 10.3 MSF of positive absorption in the U.S. and slightly negative absorption in Canada. However, the real story this quarter was the virtual halt in U.S. CBD absorption as nearly 10 MSF of absorption registered in the suburban market, where the recovery has been gaining traction after lagging the CBD market coming out of the recession.

Decreased construction activity overall. The amount of office space under construction ticked down slightly in Q1 2015, as construction activity decreased in the U.S. for only the second time during the recovery. The 16 MSF of space that came online in the U.S. during the quarter was the largest amount since late 2009.

Construction concentrated in top markets. Construction activity remains highly concentrated in the markets have been leading the national economic and office market recoveries. The top 10 markets accounted for 66.2 MSF, or 58 percent, of the 113.8 MSF of office space under way in the U.S. and Canada in Q1 2015, more than double these markets’ 27 percent share of existing office inventory.